First Leveraged MicroStrategy ETF Approved by SEC

Key Points:

• The SEC has authorized MSTX, the first leveraged single-stock ETF focused on MicroStrategy.
• Defiance ETFs’ MSTX offers amplified exposure to Bitcoin due to MicroStrategy’s substantial Bitcoin holdings
• Leveraged MicroStrategy ETF comes with increased risks and volatility, with performance magnified daily.

The Securities and Exchange Commission has approved the first-ever leveraged single-stock ETF, which aims to track MicroStrategy for the delivery of 175% of the daily return of the stock of MicroStrategy.

Read more: MicroStrategy Bitcoin Investment Will Be Boosted With $2 Billion Share Offering Plan

SEC Approves First Leveraged MicroStrategy ETF

Provided by Defiance ETFs—a thematic and leveraged ETF provider, MSTX will give increased exposure to Bitcoin due to the large holding of MicroStrategy in the cryptocurrency.

As of Q2 2024, MicroStrategy‘s balance sheet holds around 226,500 Bitcoins that were mostly acquired through debt—essentially making its stock a proxy for leveraged Bitcoin investment. According to Defiance CEO Sylvia Jablonski, the ETF provided potential double leverage on Bitcoin exposure as MicroStrategy was one of the largest corporate holders of Bitcoin.

Leveraged MicroStrategy ETF Faces High Volatility and Risk

However, leveraged ETFs like MSTX come with bigger risks. These funds try to achieve their investment goals each day. As such, the performance is amplified daily but may stray further over longer time frames. According to Eric Balchunas, the senior ETF analyst at Bloomberg, a leveraged MicroStrategy ETF would be “the most volatile ETF” in the U.S. market.

The introduction of leveraged MicroStrategy ETF comes in handy, considering ETFs form a rather big portion of Bitcoin price dynamics. By 15 February, Bitcoin ETFs contributed around 75% of new Bitcoin investments, thus pushing its value above the important level of $50,000. In sharp contrast, leveraged equity ETFs represent less than 1% of overall ETF assets.

The SEC has also green-lit 3x leveraged ETFs by GraniteShares and Direxion that focus on Tesla and Apple, respectively. Defiance attempts to differentiate MSTX because of the MicroStrategy-Bitcoin link. Ultimately, however, it will come down to demand for Bitcoin exposure from investors and the stock’s underlying performance as a proxy for the digital currency.

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